From the Indianapolis Star:
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Pence is right that a recurring tax on equipment, no matter how old the computer or backhoe, is a real disincentive for businesses to invest in the state. Michigan will phase out the tax entirely by 2024. Two other neighboring states, Illinois and Ohio, already have eliminated the tax.
But, as local government leaders and some state legislators have noted, dumping the tax is not a simple matter because of the need to replace the revenue it generates — more than $1 billion a year for local units of government, including schools.
Revenue-strapped Indianapolis, already struggling to pay for basic services such as police protection and parks, would be hit hard. Other cities in the state might well be pushed over the brink of bankruptcy unless new sources of revenue are tapped.
Pence, it should be noted, has proposed phasing out, not suddenly eliminating, the tax. Although that approach would give local governments more time to adjust, the governor and his team have yet to provide specific alternative sources of revenue.
That’s where the Michigan approach could prove useful. First, phasing out the equipment tax was undertaken as part of a larger reform package. Second, the needs of local governments were taken into consideration and specific avenues for replacement revenue identified. Third, while the overall goal there was the same as here — to make the state as competitive as possible for new jobs — it was guided by the principle of not picking winners and losers. That’s why several targeted tax breaks were eliminated.
The best solution is for the governor and legislative leaders to spend the coming months working together to draft a comprehensive plan for business tax reform, one that includes a phase-out of the equipment tax. Indiana is competing in a national and global market for jobs, and disincentives that push businesses away need to be addressed.
Pence has started a useful discussion in Indiana about phasing out a tax that does not make good economic sense. But the very real needs of local governments also must be respected in the process.
http://www.indystar.com/story/opinion/2014/01/17/editorial-mike-pences-business-tax-cut-could-help-indiana/4597511/
